The price of gold never interested me much, but I believe it's time has come.

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Tuesday, January 20, 2009Gold Rises On Worries Recession Will Deepen

NEW YORK -- Gold futures rose Tuesday for a second session, ending above $850 an ounce for the first time in more than a week as worries that the global economic recession will deepen raised the metal's appeal as a safe haven. Gold for February delivery rose $15.30, or 1.8%, to close at $855.20 an ounce on the Comex division of the New York Mercantile Exchange, ending above $850 for the first time since Jan. 9. The metal lost 1.8% last week, falling for a second week.

Root causes of hyperinflationThe main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run. Enactment of legal tender laws and price controls to prevent discounting the value of paper money relative to gold, silver, hard currency, or commodities, fails to force acceptance of a paper money which lacks intrinsic value. If the entity responsible for printing a currency promotes excessive money printing, with other factors contributing a reinforcing effect, hyperinflation usually continues. Often the body responsible for printing the currency cannot physically print paper currency faster than the rate at which it is devaluing, thus neutralizing their attempts to stimulate the economy.

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In the United States of America, hyperinflation was seen during the Revolutionary War and during the Civil War, especially on the Confederate side. Many other cases of extreme social conflict encouraging hyperinflation can be seen, as in Germany after World War I, Hungary at the end of World War II and in Yugoslavia in the late 1980s just before break up of the country.

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Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

- Outright lying in official statistics such as money supply, inflation or reserves. - Suppression of publication of money supply statistics, or inflation indices. - Price and wage controls. - Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar. - Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

The Wiki article has some wonderful charts and lists countries that had hyperinflation at some point in time.

Here is another -

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Historically, money has usually gone through four stages. In the first stage, money is made of a rare material, and the value of the money is determined by the amount of the material it contains. In the second stage, money is made of another material, such as paper, with no inherent value but can be exchanged into the physical stuff. In the third stage, money cannot be exchanged into anything physical, but its value is determined by law or custom. In the fourth and last stage, inflation increases to the point that money becomes virtually worthless.

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...In hyperinflation money loses most of its value practically overnight. Hyperinflation is often the result of increasing regular inflation to the point where all confidence in money is lost, but there can also be other immediate causes. It is important to understand that in a fiat monetary system, the value of money is based on confidence, and once that confidence is gone, money irreversibly becomes worthless, regardless of its scarcity.

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It is often argued that all fiat money eventually will become worthless. This has certainly been the case in the past. On the other hand it could also be argued that the current fiat monetary systems have not led to hyperinflation, and it seems unlikely that they will. It is not a very convincing argument, though, as hyperinflation never seems likely until it is well underway. Looking at the past, there is certainly a lot of evidence that all fiat money will eventually lose its value.

When I first heard the term 'fiat currency' I thought the carmaker had some kind of bonus program...

Savings are at historical record LOWS - yet debt levels are at historical record HIGHS. Interest rates are hitting record LOWS. How can this be? This is not a natural order; it is a man made or contrived order - a new world order: wealth transference from the many to the few. Perhaps this is why there is a credit crisis. Perhaps this is why the U.S. has gone from the greatest creditor nation in the world to the greatest debtor nation.

Total debt in the United States is $53 TRILLION dollars, which is almost 500% of net national income. We owe foreign entities 12.5 trillion or 24% of the total. Does this sound like our standard of living is increasing or decreasing?

We have come to a fork in the road. Ludwig von Mises stated: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

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The gig is up. The fraud is seen for what it is. The currency is no longer accepted as the common medium of exchange. The use of the currency ends. The creature destroys itself by suicide - by hyperinflation. Hyperinflation is the death-knell of paper fiat debt-money.

Wow - being a pretty new monkey I did not know this forum existed. I am so excited.

We are members of the Liberty Dollar group - we use constitutionally based silver as currency. It is pretty cool. I think that the posting about the dollar not being worth as much as it was is on track. I had it explained to me like this - take a rare painting. It is worth a lot because there is only one of it. Now if there was suddenly discovered that there were 1000 of it, the value would go down because it is not as rare. Same thing basically with the dollar. The government keeps making them and they are worth less and less. The downfall of the dollar was, IMHO, when we went off the gold standard. Some of us are old enough to remember when you could take a dollar (aka silver certificate) to the federal reserve and get an ounce of silver for it. During this time the dollar had a definition - it was one ounce of silver. everyone understood what it represented. Now the dollar is merely a measure of debt. It is no longer a representation of something real. Sad.

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We can never be sure that the opinion we are endeavoring to stifle is a false opinion; and if we were sure, stifling it would be an evil still. - John Stuart Mill On Liberty, 1859- George Bernard Shaw

The problem is that after years of inflationary-financed statism and consumption, we are insolvent. The most common error I see people making is conflating liquidation with deflation. The problem isn't that the money supply has shrunk, but that the bank accounts of Americans have shrunk. The loan market is completely insolvent and if you have a bank account in the United States, you are broke. What the Fed has done, however, is re-create our "savings" on a printing press. The Fed has made lost deposits real. This act alone - even without monetary aggregates increasing - is hyperinflationary.

Fractional reserve banking works insofar as not everybody tries to exercise control over their deposits at once. That the Fed has gone ahead and made all of these deposits real is frightening.

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Unfortunately, some people don't believe inflation is coming because the stock prices of worthless companies have deflated. That isn't true deflation (i.e., dollar revaluation). One should be asking why worthless companies haven't hit zero. To see the inflation, don't look at the price of air. Look at the prices of commodities. If we keep pretending that our consumption can be paid for with inflation and not production, the dollar will collapse. If Peter Schiff has a "problem," it is that he can see things that most people can't.

As the United States teeters on the verge of a dangerous recession, which has implications for the Chinese economy, relatively un-globalized Russia has little to fear. A falling dollar pushes up oil prices, providing Russia with large amounts of forex, giving it the ability to purchase significant U.S. assets, a privilege in many cases denied to investors from the gulf region, as was evident with the Dubai port debacle. Russia’s LukOIl, although not official state property, recently purchased 1 300 Getty filling stations across the U.S. Russia knows that in the event of political isolation, it can use its energy as political currency. The same strength can offset a dollar collapse, giving Russia the ability to demand industrial goods as payment for energy...